Asli Demirguc-Kunt, a chief economist at the World Bank, recently posted an article entitled “Microfinance: Dream versus Reality”. Her post provides an overview of the tough tradeoffs faced by microfinance institutions: between serving the poorest clients and achieving financial sustainability (and profitability). I highly suggest reading it, as it provides a synopsis of recent World Bank research and conclusions on the state of microfinance markets, including analysis using data culled from the MIX. The economists stress that their findings highlight the sometimes white-washed and downplayed tension between “meeting social goals and maximizing commercial success.” They conclude that “reaching the very poor with small-scale services remains a tough business and often entails charging high fees or depending on steady subsidies.”
To summarize in my own words, they point out the difficulty of simultaneously meeting 3 goals: commercial sustainability, financial access for the poorest, and reasonable rates (as illustrated by the graphic below). Any one side of the triangle connects two of these goals, but leaves the other behind.
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